Jun 5, 2020

Courts Can Review Decisions of Unincorporated Associations – on Narrow Grounds

Karahalios v. Conservative Party of Canada, 2020 ONSC 3145 (CanLII)

The recent decision of Karahalios v. Conservative Party of Canada has received a good deal of media attention, but little has been said about the case’s underlying legal issues or the implications for future cases dealing with the rights of members of unincorporated associations. In the following post, I tackle these issues and offer a proposal for a slight modification to the doctrine.

The Decision

The case concerned former Conservative leadership candidate, Jim Karahalios, who was ejected from the leadership race after making controversial and arguably discriminatory comments against fellow candidate Erin O’Toole’s campaign chair, Walied Soliman. After directing that the case proceed to summary judgment, Justice Perell ruled that the disqualification of Karahalios was invalid. This, however, proved to be a Pyrrhic victory for Mr. Karahalios. In explaining why Mr. Karahalios had not been disqualified properly, Justice Perell also provided a path for the Party to do so in a procedurally fair and valid manner. Not surprisingly, Mr. Karahalios was disqualified almost immediately after the decision was released, this time in accordance with the Court’s decision.

Karahalios will have implications beyond the political party realm. At base, the decision is about the jurisdiction of courts to hear disputes between unincorporated associations and their members. To that end, it is about what rights the members of unincorporated associations possess and, conversely, the degree of discretion the association has to determine its membership and make decisions affecting those members. Unincorporated associations include political parties (such as the Conservative Party of Canada) but they also include a range of other associations such as churches, golf clubs, social clubs, and various charities. These associations are ubiquitous in Canadian society, but the legal relationship between the associations and their members, along with the court’s ability to oversee that relationship, has long been confusing.

Prior to the Supreme Court of Canada’s recent decision in Highwood Congregation of Jehovah’s Witnesses (Judicial Committee) v. Wall, many were of the view that courts could review the decisions of unincorporated associations – including political parties – the same way they would review those of administrative agencies. When reviewing an administrative decision, a court determines whether a party was afforded procedural fairness and also looks to the substance of the administrative decision itself to determine whether it was reasonable – or correct depending on the standard of review. In Wall, the majority clarified that judicial review was not available where the body is a private association, and that the matter would only fall within the court’s jurisdiction if a contractual or proprietary right had been violated. In that case, no such contract existed and therefore the court had no jurisdiction to review. However, there remained uncertainty regarding the scope of review in circumstances where there is an underlying contract. The decision in Karahalios clarifies the criteria for review.

Reviewing the decision of unincorporated associations

A court reviewing the decision of an unincorporated association may only set the decision aside if there is a contract governing the relationship, such as a constitution, rules or by-laws. If such a contract exists, the decision may be set aside where 1) the decision was not made in accordance with the contract between the parties; 2) the process leading to the decision was fundamentally unfair; or 3) the decision was made in bad faith. These criteria are less robust than reasonableness review, to be sure, but they still provide courts with a potentially significant review function, depending on the nature of the contractual relationship between the parties.

As Perell J. explained in Karahalios, determining whether there has been a violation of any of the contractual documents is “entirely a matter of contractual interpretation” (para. 203). In other words, a court is to apply the traditional tools of contract interpretation to determine the rights and obligations of the parties. Mr. Karahalios had been disqualified by the Dispute Resolution Appeals Committee (DRAC), which under the applicable rules, lacked the authority to disqualify a candidate. The Court therefore held that the disqualification was invalid on procedural grounds. On the other hand, there was no doubt that the Leadership Election Organizing Committee (LEOC) did have the jurisdiction to disqualify a candidate and the court interpreted this jurisdiction broadly to include a breach – in the opinion of the LEOC – of the principles underlying the Conservative Party as set out in its Constitution.

Karahalios is certainly illustrative of a more hands-off approach to reviewing the decisions of unincorporated associations, though this approach does not flow necessarily from the court’s narrow jurisdiction to review. As Perell J. noted, the issue is one of standard contractual interpretation, and, as such, depending on the terms of the contract, a court may take a stricter approach to determining whether the association abided by its own rules. And, indeed, as I discuss in greater detail below, it is arguable Perell J. ought to have interpreted the LEOC’s discretion more narrowly in light of the arguable ambiguity in the LEOC rules.

Once a court has determined, whether on a strict or a broad reading, that an association had the legal jurisdiction to disqualify or discipline a member, the court will not review whether the association exercised its discretion reasonably. Were the Conservative Party of Canada a public agency, the court would not only assess whether the LEOC had the authority to disqualify a contestant for disregarding the principles of the Party, but also whether its conclusion that Mr. Karahalios had in fact breached those Rules was reasonable. Unless the association’s rules expressly state that the decision must be reasonable, Karahalios makes it clear that courts will not judicially read-in such a requirement. The courts will assess whether the association had legal authority to act, but will not review whether its findings of fact or other determinations were unreasonable.

An association member, however, still has two other grounds upon which they can challenge a decision of the association (assuming again that a contract exists). The first is where the member has been denied procedural fairness. Unlike the public law realm, there is no free-standing right to natural justice in the private realm, and so the degree of fairness to which the member is entitled will vary depending on the nature of the organization and the seriousness of the consequences of the association’s decision. In the absence of any rule or other contractual provision speaking to a right of procedural fairness, Perell J. interpreted the right relatively narrowly. While the process to disqualify Karahalios may not have been up to the standard of a court, it was “fundamentally fair” since Karahalios “was given notice, and he knew the case he had to meet” (para. 243).

Secondly, a court may set aside the decision of an unincorporated association governed by a contract where the decision was made in bad faith. The common badges of bad faith include a) questionable timing, b) decisions made under false pretenses, c) improper motives, d) lack of notice, e) usual practices and procedures set aside, f) parties most affected are kept in the dark, g) singling out one individual for different treatment. With is interesting to note from this list is that some of these badges may speak to the substance of the decision itself. While the court is not permitted to review the “reasonableness” of the association’s decision, where the decision is patently unreasonable, this may suggest an improper motive or that the member has been singled out for treatment. Bad faith, in other words, can sometimes be gleaned from the decision and its surrounding circumstances. As with procedural fairness, this appears to be a tough standard to meet in practice, but it is nevertheless an avenue to which a disqualified or disciplined member should give serious thought.

Conclusion: A proposal for slight modification

The upshot of the Karahalios decision for unincorporated associations is that their constitutions, rules and by-laws will be construed as contracts that are subject to judicial oversight but that the jurisdiction of the courts to review them will be limited. Associations with governing contractual documents should also ensure that any discipline proceeding against a member proceeds in good faith and affords the member procedural fairness. Conversely, members should carefully review the contractual documents of the association to understand their rights and obligations, and should ensure that if and when a dispute arises, they appeal not only to the terms of the contractual documents, but to the principles of procedural fairness and good faith.

The Karahalios decision has helped clarify the doctrine, which is always a good thing. But if there is one element I find lacking with the decision it is that it appears to construe the provisions of the contract excessively in favour of the Conservative Party when the “normal principles of contractual interpretation” would actually go the other way. In particular, it would be reasonable for a court to adopt a “contra proferentem” rule in which any ambiguity is the constitution, rules or by-laws is construed in favour of the member. The contra proferentem rule is a standard principle of contract interpretation, which holds that ambiguous provisions should be construed against the party that drafted the contract since that party was at liberty to incorporate clearer language – in this case, the associations. The rule becomes all that more important in the context of political parties, whose constitutions affirm, in some form or another, the “democratic process,” which arguably militates in favour of a stricter reading of disqualifying provisions.

It is not clear whether a contra proferentem rule would have changed Mr. Karahalios’s fate, but it very well may have since the term “directive” is arguably ambiguous in the context of the LEOC rules. Going forward, adopting a contra proferentem principle, and perhaps a stricter reading of disqualifying provisions generally, would provide greater protection for the democratic process, while also maintaining a more limited role for the court in reviewing the decisions of private associations.